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Markets Pulse

Euro Jumps on Fiscal-Cliff Optimism

By Nicole Hong

The euro rose to an eight-month high against the dollar on Tuesday on signs that U.S. policy makers are moving closer toward a comprehensive debt deal.

Republican House Speaker John Boehner advanced a backup plan on Tuesday as a way to avoid a “fiscal cliff” of tax increases in early 2013 if negotiations with President Barack Obama break down. The plan offered to extend current income-tax rates for all individuals making an annual income of $1 million or less, similar to the latest Republican proposal from over the weekend.

Although the plan was immediately rejected by the White House, the fact that both sides seem more willing to compromise is giving investors a reason to sell the safe-haven dollar, analysts say.

The euro last traded at $1.3224, up from $1.3163 late Monday. It jumped as high as $1.3239 earlier, its strongest level since May 2.

“The tone seems to suggest that both camps are gradually making their way toward a solution,” said Charles St-Arnaud, currency strategist at Nomura in New York. “There’s more concession on both sides, which is why investors see this as an indication that a solution is being prepared right now.”

Both parties appear to be inching closer to a deal. Earlier this week, Mr. Boehner eased his opposition to the idea of higher tax rates on the wealthiest Americans, while Mr. Obama proposed raising the threshold for new tax increases to households earning more than $400,000 annually.

Further adding to euro-zone optimism, Standard & Poor’s raised Greece’s credit rating on Tuesday to B-minus from selective default with a stable outlook, the highest rating S&P has given Greece since June 2011. S&P cited euro-area members’ “determination to support Greece’s euro-zone membership” along with the Greek government’s commitment to fiscal and structural reforms.

Meanwhile, the dollar continued its climb against the yen, trading at ¥84.10 from ¥83.89 late Monday.

The Bank of Japan’s monthly two-day policy meeting ends on Thursday, and analysts widely expect the BOJ to expand its asset-purchase program again. The big question now is what type of assets the central bank will buy and whether it will shift its stance on inflation targeting.

Elsewhere, the Australian dollar edged lower against the greenback after the Reserve Bank of Australia released its latest policy meeting minutes. The central bank said it cut rates in December in response to concerns about a slowing mining sector and weaker jobs outlook.

The Aussie last traded at $1.0540, down from $1.0552 late Monday.

The Wall Street Journal Dollar Index, which measures the dollar against a basket of currencies, dipped to 69.843 from 69.935.